Forecasting staffing needs is an element of strategic planning. Staffing levels affect many aspects of a small business. Too many employees drive up overhead and directly affect business profitability. Too few employees limit the ability to serve current customers and grow the business. Understaffing may make sense to the management team but have negative impact in the long run.

Payroll Costs

Cutting staff immediately reduces payroll and benefit costs. However, if staffing levels are too low, hiring temporary staff at a premium rate can drive up payroll. Fewer employees who now have to work overtime can be more expensive than hiring additional full-time staff. The time regular employees spend training temporary staff and correcting errors reduces productivity. Replacing temporary workers repeats the expensive hire-and-train process.

Quality

Both product and service quality suffer when fewer employees are available to serve customers and run production lines. Fewer employees must work faster to handle a higher volume of work, and errors increase when quotas are stressed over quality. Employees may be rushed through training or begin working without training to ease the workload. Poor quality over time diminishes a company’s reputation and drives away customers.

Employee Stress

Reducing staff makes existing employees responsible for more work, and increased workload adds stress to complete work and meet performance expectations. Increased stress lowers morale and employee job satisfaction, takes a toll on an employee’s mental and physical health and can increase time needed off work. Turnover rates also increase when overwhelmed workers quit their jobs rather than keep up with increased workloads at the same pay rate.

Lost Businesss

An understaffed business misses growth opportunities because it lacks the capacity to meet customer needs. If a business takes on new clients or products and can’t deliver the goods or services, it can lose the business and damage its reputation in the industry. Lost business means lost revenue and growth into new markets. A business should weigh the cost of an employee against the amount of revenue generated by that employee’s contribution to the organization. Adding another employee at $30,000 a year may seem like a lot of overhead, but the expense could be outweighed by the value of increased business capability.

About the Author

Mary Nestor-Harper has more than 12 years as a human-resources director and more than 19 years experience as an HR/management consultant. She has been published in "Training Magazine," "The Savannah Morning News" and on the Web. A television and radio business, career and motivation expert, she shares career and job search tips as Ageless Media Network's career expert on WTKS-AM 1290, Savannah, Ga.